The Tax-Free Savings Account was introduced in the 2008 Federal Budget as a new tax-saving measure.
A Group TFSA will be a valuable addition to any Group Benefits or Retirement Savings plan.
As the funds invested in this program grow tax-free, capital gains on investments under this plan are not taxable, providing a valuable opportunity for individuals to save for that new car, home, or provide addition funds for their retirement. A general overview of the Tax-Free Savings Account is provided below.
Eligibility and Contributions:
- Effective January 1, 2009, TFSAs will be available to all Canadian Residents over the age of 18.
- Maximum contribution is $5000 per year regardless of individual income.
- The $5000 contribution limit is in addition to the RRSP maximums.
- Contributions are not tax-deductible.
- TFSA contribution limit will be indexed to inflation, rounded to the nearest $500.
- Contribution room determined by the CRA.
- Group and individual TFSAs will be available.
- Group TFSAs offer the convenience of automatic payroll deduction as well as lump-sum payments.
- Investment earnings and withdrawals are tax-free (including Capital Gains Tax).
- Withdrawals available at any time for any purpose.
- Amounts withdrawn are added to an individual’s contribution room for the following year
- Unused contribution room may be carried forward indefinitely.
- Investment options will be similar to an RRSP. Exceptions exist for non-arm’s length entities.
- Income splitting is allowed for contributions.
- TFSA assets can be used as collateral for loan agreements.
- May be used to form part of an individual’s retirement strategy.
- TFSAs do not mature at age 71; therefore, there is no need to convert into a retirement income product.
- Income earned within a TFSA and withdrawals do not affect eligibility for federal income-tested benefits and credits.
- TFSAs will provide a tax-effective account for excess contributions to capital accumulation plans.
- Reporting will be done in a similar fashion to existing group retirement plans.
- In the event of the death of the account holder:
- Earnings prior to death are not taxable.
- If a spouse is named as the successor account holder, TFSA earnings accrued after death are not taxable.
- If no successor has been named, earnings accrued after death will be then become taxable.